Employee Benefit Plans: Common Retirement Plan Pitfalls to Avoid
Don't wait for your auditors to find the issues. Own your compliance process.
That's the advice Quinton Knott, a Manager in Hantzmon Wiebel's Accounting and Auditing department, shares in Episode 25 of the It Depends podcast.
Retirement plans can be a powerful benefit for attracting and retaining talent, but when a plan falls out of compliance, the costs add up quickly, and remediation is often time-consuming and expensive.
If your organization sponsors a retirement plan, like a 401(k), staying compliant isn't just about checking a box for an annual audit. It's about ensuring day-to-day payroll and human resources processes match your plan documents. Here are the most common pitfalls Quinton and our team see, and how to avoid them.
1. Misunderstanding or Ignoring Your Plan Documents
Plan documents are the legal foundation of your retirement plan. The challenge is that many organizations:
Don’t have the most up-to-date versions readily available, and/or
Have the documents but haven’t translated the details into repeatable payroll/human resources workflows.
Two frequent trouble spots where errors are often discovered include:
Eligibility Tracking Errors
Many plans have eligibility rules that vary by employee group, location, division, or other classifications. A common example is a waiting period (like 90 days). If the organization doesn’t have a reliable way to track when employees reach that eligibility date, employees may not be offered timely entry into the plan.
That can lead to missed employee deferrals, missed employer match, and potential corrective contributions (often including earnings).
Eligible Compensation Mistakes
Plans define what compensation counts for retirement contributions. But that definition may differ from what payroll teams naturally assume.
Payroll isn’t just “salary”, it’s often a mix of earnings codes, bonuses, and other pay types. Plan documents define which of those compensation types are eligible for deferrals and match.
For example, some plans include certain bonuses as eligible compensation, while others explicitly exclude them. If payroll is not aligned with the plan’s definition of eligible compensation, the plan can end up with incorrect deferrals and/or matching contributions.
2. Unclear Responsibilities Between the Employer and The Third-Party Administrator/Record Keeper
Many employers assume their third-party administrator (TPA) or record keeper is "checking everything." This is one of the most common (and costly) misconceptions in retirement plan management.
Under ERISA (the Employee Retirement Income Security Act), the organization sponsoring the plan (the employer) is designated as the named fiduciary. That means the legal obligation to ensure the plan is operated in accordance with plan documents and federal law falls on the employer, not the TPA or recordkeeper.
So what does the TPA actually do? TPAs and record keepers provide administrative services: they process contributions, maintain participant records, prepare required filings, and often assist with compliance testing. These are valuable services. But they are service providers, not fiduciaries in most arrangements. They are not independently verifying that your payroll processes match your plan document, and they are not responsible if they don't.
Here is a practical way to think about it: your TPA processes what you send them. If you send incorrect census data, incorrect compensation figures, or late remittances, most TPAs will process what they receive. The obligation to catch those errors before they happen sits with you.
This distinction surprises many business owners because the relationship with a TPA can feel like a handoff — "we hired experts, so we are covered." In reality, hiring a TPA delegates administration, not fiduciary responsibility. Plan trustees and key decision-makers within the organization remain accountable to participants and to the Department of Labor.
Even with excellent partners in place, it is still important to maintain a periodic internal review routine, ensure your payroll and HR teams understand the plan documents, and verify that the information flowing to your TPA is accurate before it leaves your organization.
3. Weak Internal Controls and Messy Census Data
Early in an audit, one key document used is the census, which is the year’s employee/demographic/payroll summary that supports plan testing and compliance, and is often one of the first documents that auditors review.
If payroll and human resources data is inaccurate going into the census, it can create downstream compliance issues. The principle here is simple:
Garbage in, garbage out.
If the information entering your payroll system is inaccurate, those errors will flow directly into your census data, your compliance testing, and potentially your plan contributions. Avoid downstream problems by ensuring strong internal controls are in place so the data feeding your census is accurate and consistent before it ever reaches your TPA.
4. Late or Inconsistent Remittance of Employee Deferrals
One of the most common issues regulators focus on is the timing of employee deferrals being remitted to the plan.
If your organization has a policy that states “we remit within 1–3 business days after payroll,” but the actual behavior is more like 5–7 days (or varies from pay period to pay period), that can become a serious compliance risk.
Proactive Steps to Stay Compliant and Audit-Ready
Here are some practical steps employers can take right away:
Gather the most current plan documents and make sure they’re accessible.
Read them and translate them into process. Your payroll and human resources procedures should match the plan documents.
Document your procedures in writing so the process doesn’t depend on one person’s memory and ensure everyone involved follows the same process.
Train the team, especially if your TPA offers fiduciary responsibility or compliance training (consider participating periodically, since requirements and laws change frequently).
Don’t wait for an audit to find issues. If you’re unsure, ask a trusted advisor and resolve it proactively.
If your organization sponsors a retirement plan, now is the right time to review your processes before an issue surfaces in an audit. Our Employee Benefit Plan team works with organizations to identify compliance gaps, strengthen internal controls, and build the processes that protect both your plan and your people. Reach out to learn how we can help you get ahead of potential issues before they become costly ones.
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